Like Schrodinger's quantum cat -- alive and not
alive at the same time -- Greece has defaulted
and not defaulted after the decisions of the 17
Eurozone bigwigs yesterday. Greece will remain in
the Eurozone; its debt servitude will be slightly
relieved but stretched out over a much longer period of years.
So far, financial analysts are equivocal over the
complex five-point bail-out and roll-over
package, not the least because it was summarized
confusingly at a press conference by three
Presidents, one Chancellor and one Prime Minister
in differing states of bombast. Afterwards, they
only took two questions from the journalists and
evaded the essential points of both.
But what the financial journalists will write or
broadcast today scarcely matters. What will
matter is whether European and American banks
will voluntarily agree to share the burden
(because this was implied by the decision),
whether private investors will continue to buy
eurobonds (particularly those coming up
of Portugal, Ireland and Spain), whether German,
Finnish and Dutch workers will be happy to be
taxed more in order to subsidize Greek workers,
whether the riots in Athens will become more or
less frequent, whether the queues of the charity
food stations in Greece will become longer or shorter, and suchlike.
It is the summation of these verdicts, not those
of the Eurozone ideologues, that will have the
final say. And my guess is that, over the
week-end and the coming week, this will be the
same refrain as before: "Nothing has been solved.
They've kicked the can further down the road."
Keith
At 22:17 21/07/2011, Barry wrote:
Euro Zone Leaders Clinch Rescue Plan for Greece
By STEPEHN CASTLE
Published: July 21, 2011
BRUSSELS After weeks of uncertainty that
revived fears about the foundations of the euro,
European leaders on Thursday clinched a new
rescue plan for Greece that could push the
country into default on some of its debt for a
short period but would give Europes bailout
fund sweeping new powers to shore up struggling economies.
At a press conference late Thursday, German
Chancellor Angela Merkel confirmed the
109-billion-euro aid package for Greece.
European officials also said that financial
institutions that own Greek bonds would
contribute 50 billion euros through 2014 through
a combination of debt extensions and the
purchasing of discounted Greek bonds on the secondary market.
The outlines of the plan worked out by the 17
euro zone heads of government seemed
particularly bold, dealing with the economic
problems of bailed-out Ireland and Portugal as
well as Greece, and calling for nothing short of
a European Marshall Plan to get Greece itself
on a road to recovery. The underlying economies
of those countries and others remain remarkably frail, however.
On the central issue of extending debt, rating
agencies had already issued strong warnings that
such steps might constitute a limited form of
default because creditors would not be repaid in full on the original terms.
The agreement came after days of conflict among
Europes leaders over how to keep the debt
crisis from engulfing the much-larger economies
of Italy and Spain. Any contagion would not only
pose a potent threat to the euro the most
important symbol of the European integration
but could destabilize the entire global financial system.
The plan calls for a comprehensive strategy for
growth and investment in Greece, including the
release of European Union development funds to
finance infrastructure projects.
More significant, the euro zone leaders gave
wide-ranging new powers to the bailout fund, the
European Financial Stability Facility, by
allowing it to buy government bonds on the
secondary market and to help recapitalize banks where necessary.
That would effectively turn it into a prototype
European version of the International Monetary
Fund. The bailout fund would even be able to
help shore up countries that had not requested a rescue.
Germany rejected such ideas only months ago.
Strengthening the bailout fund signals a new
willingness to come to terms with the scale of
the euro zones debt crisis by taking a big step
toward common economic structures. The
challenges for Greece and the other bailed-out
countries remain enormous, however, and some
fear a default may still happen, even though
markets reacted positively Thursday.
Diplomats said that going forward with the
proposals would require a change in the funds
rules, which in turn would require approval by national parliaments.
On the eve of the summit meeting, a statement
from the French president, Nicolas Sarkozy, and
Mrs. Merkel said they had listened to the
views of the president of the European Central
Bank, Jean-Claude Trichet, who flew in from
Frankfurt unexpectedly to join them in Berlin.
Though the statement from Mr. Sarkozy and Mrs.
Merkel did not say whether they had settled the
issue of allowing Greece to write down some of
its debt something Mr. Trichet has argued
against publicly and adamantly suggestions
before the summit meeting in Brussels were that
the E.C.B. had softened its stance.
The demand to prevent a selective default has
been removed, the Dutch finance minister, Jan
Kees de Jager, told Parliament in The Hague, Reuters reported.
That also appeared to be the sense of a draft
meeting statement that circulated before the summit meeting ended.
The financial sector has indicated its
willingness to support Greece on a voluntary
basis through a menu of options (bond exchange,
rollover and buyback) at lending conditions
comparable to public support with credit
enhancement, the draft document said.
Though no figures were specified in the draft
agreement, the loss for private investors would
be around 20 percent, according to a German
official not authorized to speak publicly.
Selective default is used by rating agencies
to describe when terms of a bond such as the
repayment deadline or interest rate have been
altered. It falls short of an outright default,
which usually occurs when the borrower stops making payments.
One theory is that the rating agencies could be
persuaded to wait before issuing any formal ruling on the plan.
But the draft statement offered a series of
concessions for Greece under a new bailout,
concessions designed through lower interest
rates and extended maturities, to decisively
improve the debt sustainability and refinancing profile of Greece.
According to the draft, the maturity of European
loans to Greece would be extended to a minimum
of 15 years from 7.5 years and at interest rates of around 3.5 percent.
Similar help through reduced borrowing costs
would be extended to Portugal and Ireland. The
Irish government would, in exchange, end a
dispute with France by promising to participate
constructively in talks on a common base for
corporate tax in Europe. Officials said that
means Ireland would not be required to raise its
relatively low corporate tax rate currently
12.5 percent as had been sought by some
countries, including France, which have higher tax rates.
The summit meeting was called after days of
market turbulence in which borrowing costs
spiked for Italy and Spain, raising fears that
the euro zone debt crisis would spread to those
much bigger countries, potentially setting off
another global financial crisis. Germany,
Finland and the Netherlands have insisted that
private bondholders share the pain of a second
bailout, putting them at odds with the E.C.B.
and some other governments. Besides concerns
over contagion, the central bank has said a
selective default would make it impossible for
it to accept Greek bonds as collateral.
James Kanter contributed reporting from
Brussels. Matthew Saltmarsh and Landon Thomas Jr. contributed from London.
Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/07/
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